Investors Eye Italian Comeback as Populist Threat Recedes

(Bloomberg) -- Italy is again on the radar of international investors after the populist threat in the country has been put on hold.

The country’s business elite, gathered at an annual summer lakeside meeting, are cheering premier Giuseppe Conte’s second act. His new government has promised to dial down the confrontation with European partners and stop flirting with the idea of leaving the euro.

“With a new government that looks to Europe not for confrontation but for dialogue, the immediate reaction from markets is more confidence,” Jose Ignacio Izquierdo Saugar, chief executive officer of Aviva Plc’s Italian unit, said in an interview in Cernobbio, Italy. “Italy represents a good investment opportunity.”

While leading representatives of the new government didn’t take part in the Ambrosetti Forum, as Conte is still putting the finishing touches on his team and program, optimism was in large supply. Financiers, focusing on the implication for investors of a more Europe-friendly coalition, expect deals put on hold for months to be revived as the country benefits from lower spreads and high liquidity.

“A government supporting pro-Europe policies drastically reduces the so-called redenomination risk that was weighing on the valuation of Italian assets after populists threatened to take the country out of the euro,” said Roberto Nicastro, Europe senior adviser at New York-based private-equity firm Cerberus Capital Management. “Cerberus is looking positively at the coming months, this is a great opportunity that the country has to catch to attract more capital and investments from abroad.”

Italian bond yields touched record lows and stocks rallied after the populist coalition of Five Star and Matteo Salvini’s League collapsed, leading to a second pro-European Conte administration, this time with the support of the Democratic Party. Salvini still has polls in his favor, but his popularity is sliding just as he loses the spotlight of a ministerial position.

Market Opening

Under the previous government supported by Salvini and Five Star, Italy threatened to withdraw toll road concessions, sending Atlantia SpA’s shares plunging, and quarreled over industrial projects from railroads to steel mills to pipelines. The anti-business rhetoric added to investors’ concerns over the country’s clash with the EU over its debt.

A string of upcoming deals, including some expected initial public offerings, will be a key test of investors’ appetite for Italian assets.

“Now there is this opening by the market to the government, which cannot waste this opportunity,” Fabrizio Pagani, head of economics and capital markets strategy at Muzinich & Co., said in a Bloomberg TV interview with Francine Lacqua.

A positive mood toward Conte’s administration may give him more leverage with European partners at a time the priorities for Europe are being rewritten. Italy may even get away with some more leniency for its budget deficit, especially after it appointed Roberto Gualtieri, a Brussels insider, as finance minister.

Still, it’s too early to say if confidence boost will have a lasting impact on Italy’s stagnating economy. While Italy climbed one position to number 16 in Aviva’s ranking of countries’ business attractiveness, more work needs to be done to reduce bureaucracy and raise investments in a sustainable way.

Conte’s shaky coalition is unlikely to have the clout to tackle Italy’s long-running structural problems.

“Italy needs to do reforms, all Italians are aware of that, and as a result I think this will facilitate” growth, said Davide Serra CEO of Algebris Investments.

--With assistance from Tommaso Ebhardt, Flavia Rotondi and Maria Ermakova.

To contact the reporters on this story: Alessandro Speciale in Rome at aspeciale@bloomberg.net;Sonia Sirletti in Milan at ssirletti@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Marco Bertacche

©2019 Bloomberg L.P.